Mumbai: The Reserve Bank of India (RBI) has dismissed the board of Maharashtra State Cooperative Bank Ltd (MSC) and appointed two state government officials as administrators to run the bank, which is celebrating its centenary year.
The central bank got into act after the co-operative bank had its net worth or equity and reserves eroded by piling bad assets. A National Bank for Agriculture and Rural Development (Nabard) audit of the bank’s 2009-10 balance sheet revealed that its net worth turned negative by Rs 140 crore as it had to set aside money or provide for bad loans.
According to the Nabard report, the bank’s net loss in fiscal 2010 was Rs 775.98 crore and bad loans Rs 500 crore, nearly 30% of total’s advances.
Nabard executive director Prakash Bakshi confirmed that his organisation had suggested corrective action on MSC by RBI.
“This bank was already under various RBI directions for the last 13 to 14 years, but at the end of March 2010, its net worth became negative by Rs 140 crore because of the huge provisions the bank had to make on loans given to co-operative sugar factories and co-operative spinning mills,” he said.
Late evening on Friday, RBI dismantled the board and appointed state government’s agriculture secretary Sudhir Goel and planning secretary Sudhir Shrivastav as administrators.
No small depositors will lose money as the bank is protected under the deposit insurance scheme of the regulator, a RBI official said on condition of anonymity. Under this scheme deposits up to Rs 100,000 is insured.
“It will take few days for us to streamline bank’s affairs and chalk out the plan for recovery, but our priority will be to maintain utmost transparency in bank’s affairs,” Goel said.
Bakshi of Nabard said the administrators will now review both the loans and recovery processes of the bank.
There is no restriction on the bank accepting fresh deposits or giving back money to depositors, as it has enough investments to pay creditors.
“Liquidity is not an issue with the bank. It has Rs 14,000 crore of investments in government bonds,” Bakshi said.
The bank had a deposit base of Rs 18,998 crore in September 2010, according to its website. In March 2010, its net non-performing assets were 7.6% of advances.
Bakshi said bulk of the deposits are from institutions such as other co-operative banks and credit co-operative societies. The development has come as a huge embarrassment for the ruling Nationalist Congress Party (NCP) and state’s deputy chief minister Ajit Pawar, who is controlling bank’s affairs for last decade or so.
Out of 44 directors on the bank board, 25 belong to NCP including Pawar, 14 to Congress and two each from the bharatiya Janata Party and Peasants and Workers Party and one from Shiv Sena. Pawar did not respond to a text message sent on Saturday.
“The bank has attached some 86 properties including some sugar cooperatives and cooperative spinning mills but as most of them belonged to MLAs and ministers of ruling NCP-Congress combine, none of them was sold,” said BJP member of state legislative assembly Devendra Fadanvis, who raised the issue of mismanagement of bank’s affairs in the recently concluded budget session of the state assembly.
Had they been auctioned, it could have fetched the bank Rs 3,000 crore.
Fadanvis also demanded that an expert committee should be appointed to oversee the affairs of bank.
NCP spokesman Jitendra Avad dubbed RBI’s action as “unilateral and unjustified” and said no explanation was sought from bank before the board was superseded. “It is up to members of board whether to challenge RBI’s action in court of law or not,” he said.
Noted political analyst Pratab Asbe, who keeps a close watch on state’s political, social and economic issues, said NCP should share the blame for this as it has most members on the board, but Congress, BJP and Sena also can’t deny their role as they have representatives on board.
Sugar cooperatives and sugarcane farming will suffer following RBI’s decision as due to bumper sugarcane crop and ban on exports, sugar cooperatives are already facing liquidity crunch. To remain afloat in the sugar crushing season (September to March), they will require working capital.
Around two million farmers are engaged in sugarcane farming and around one million ha of land is under sugarcane cultivation in Maharashtra, the largest sugar producer in India. The state is expected to produce 9.1 million tonne sugar this year, followed by Uttar Pradesh’s 5.9 million tonne.